Hello, committee members. My name is Louis-Martin Parent, and I represent the Canadian Federation of Independent Business. Thank you for this opportunity to present to you today on SMEs and federal procurement. Thank you especially for your openness to my presenting via video conference.
By way of background, I've been one of CFIB's leads on the federal procurement file for about nine years now. I authored the report from which I will draw some data for you in a few moments.
CFIB is a political advocacy organization that represents the views of over 100,000 business owners across the country in all sectors and regions. We are a non-partisan group, and our advocacy is funded solely by our members. Finally, we take our policy positions directly from our members through various surveys that ask how they are affected by a given issue.
I would like to quickly mention that CFIB has been active on the procurement front for at least two decades. There are a few reports listed here. We have also been members of PSPC's supplier advisory committee since its founding.
The quote on slide 4 was provided in response to CFIB's federal procurement survey. I feel that it reflects many SMEs' overall views on procurement. Simply put, if the perceived effort is not worth it, SMEs will look for opportunities elsewhere. If the process involved in just getting a foot in the door seems too complicated, SMEs will look for opportunities elsewhere.
Over the course of these hearings, you will hear about many legitimate macro- and micro-level problems with federal procurement. I will mostly focus my comments on red tape and perceived red tape. Improving procurement for SMEs may be time-consuming for the government, but it is important. The University of Ottawa and PSPC recently co-authored a study that plainly states that the government must encourage SME participation in federal procurement because “the growth of SMEs accounts for a disproportionate share of job creation, innovation, and the accompanying economic prosperity.” Ensuring that SMEs can come to the table and sell themselves properly, with the least amount of hurdles, is in the country's best interest.
Moving on, procurement is an inherently competitive process. Firms that lose out on a contract will always be able to point to something that hindered their ability to present the best possible bid. It's also a completely different sales world than what most SMEs are accustomed to. The government has its own language and terms. Bidders often can't talk to the end buyer or user of their product or service. The timelines are much more drawn out than in the private sector. There will always be hurdles and pain points, but the government can make it so that it is easier for SMEs to, one, identify opportunities that are within their area of expertise and have a realistic project scope, and two, promote themselves and bid on those opportunities in a straightforward manner.
CFIB published its report on federal procurement in 2011. I'll present a few data points from that report in a moment. Many of these issues pointed to in our report have been replicated or brought up in subsequent reports, such as a 2013 study by OSME, the findings based on a 2014 email sent by the then-PWGSC minister to 130,000 suppliers in the government database, a 2015 end-of-mandate report by the outgoing procurement ombudsman, and the aforementioned 2017 University of Ottawa and PSPC study. These reports all point to many of the same obstacles. I'll review just a few of these obstacles for you.
Many data points in our survey and others that show that small businesses are integrated into every type of purchase made by the government. They provide goods and services as either prime contractors or subcontractors. Very generally speaking, a small business does a few things well and they stick to that niche, often through a limited number of contracting vehicles, but they touch on every type of government need.
Regardless of how long they have been selling to government, businesses who do federal procurement are usually more established, older firms that have been able to build themselves up prior to selling to the government. There are some positives to this, of course. Being more established gives the government more confidence that the company will be able to follow through on its promises, for example, but it also shows that younger firms are seldom considering federal procurement as a prime target, regardless of promised contract size.
Here are the responses from other members as to why they did not sell to the federal government. The second, third, fourth, and fifth most popular answers can be categorized as red tape related. I should mention here that the government has made efforts to address some of these problematic areas. I'll mention a few of these projects in a few moments.
In terms of how businesses identify potential procurement opportunities, MERX was essentially replaced by Buyandsell.gc.ca for federal procurement. However, the chart shows how business owners of smaller firms, and in particular the ones without a dedicated sales staff, are less likely to sit down and peruse various government websites for opportunities. They have so many fires to put out on a given day that it becomes a difficult choice between what's needed right now and what could be a good opportunity down the road. Once they have successfully done some procurement, it becomes easier and more straightforward for them, but you can see how it becomes a bit of a catch-22 scenario.
A CFIB survey asked members who had sold to the federal government for their thoughts on various aspects of procurement, such as fairness of criteria, promise of response to bids, timelines, etc., but the three aspects that received the lowest ratings are simplicity of forms, clarity of steps necessary to sell to the federal government, and the notification of and access to contract opportunities. Each of these has nearly 50% of members rating them as poor, and they are all red tape related.
One additional note on payment timelines is that less than one-fifth of respondents indicated “typically get paid within 30 days”. A larger group says it takes more than two months to get paid. The broader take-away from this chart is simple. If a small firm gets paid two or even three months after they have delivered a product or service, it will almost certainly sour them on doing repeat business with the government. They will also be likely to tell their fellow business owners about their experience.
Finally, I want to show you how SMEs view their greatest strengths. The top three answers are related to their company's knowledge, reputation, and experience. These are values they bring to the table. Cost-effectiveness is viewed by many as a strength but not as much as the first three are. When the government looks at price as the main determining factor in choosing a supplier, it is by default putting most SMEs at a disadvantage. It is truly a case of price versus quality, and the procurement ombudsman's end-of-mandate report that I mentioned earlier has a particularly good summary of the problem.
As I mentioned earlier in my presentation, the government has made many improvements on a few different fronts. The launch of the Buyandsell.gc.ca website was a big step forward. Whereas previously information was found on multiple websites overseen by different departments, Buyandsell.gc.ca provides a central information point, which is a good start. I will say, however, that I've received a few comments about it being rather overwhelming.
The government recently conducted a pilot for submitting bids via Canada Post's e-post service, which is essentially another way of submitting bids by email. This is very welcome and has already generated positive results for suppliers and government.
Finally the building Canada innovation program has been a successful initiative, encouraging SMEs to approach government with innovative products and solutions. It also shows that communication between suppliers and end-users can be productive, but more must be done.
My first point on the final slide will be my main recommendation. A robust e-procurement platform that lays out a clear process to build on opportunities, written in plain English or French, would be a key to reducing the hurdles for SMEs to successfully bid on contracts. The supplier advisory committee has received many updates on the government's e-procurement plans and I know it is currently aiming to award a contract in the next six to nine months. This will surely be a very complex evaluation and implementation, but they need to get this right on the first try. I would urge the government to prioritize resource allocation to support the successful implementation of the e-procurement solution.
My two final recommendations are to focus on reducing payment timelines as much as possible and to implement strategies to deter procurement officials from focusing only or primarily on price. Both of these issues have strongly discouraged small businesses from selling to the federal government or being repeat sellers.
Thank you very much once again for this opportunity.
Mr. Chair, ladies and gentlemen members of the committee, good morning.
My name is Pierre-Yves Boivin, and I am the Vice-President of Strategy and Economic Affairs at the Fédération des chambres de commerce du Québec. Today, I am accompanied by Mr. Yvon Boudreau, who works with us on access to government procurement.
We are very happy to be here today to talk about a topic that is very important to Quebec SMEs and many of our members, that is to say access to federal government procurement. I would like to thank the committee for its invitation to take part in the consultations.
I'll start by saying a few words about the Fédération des chambres de commerce du Québec, the FCCQ.
On the one hand, we are a federation of 140 chambers of commerce that are active in all regions of Quebec, which gives us a broad regional scope throughout the province. Moreover, the FCCQ is the Quebec provincial chamber of commerce, and we have more than 1,100 enterprise association members. So we have both a sectoral and a regional perspective on Quebec's economy.
Our federation represents close to 50,000 active businesses in all sectors of the Quebec economy. Our objective is to encourage an innovative and competitive business environment. That is why it is important for us to take part in today's consultation, especially when one considers that federal government purchases represent annual expenditures of $20 billion, which is a considerable amount.
Simply for your information, Quebec government procurement is also on the order of $20 billion annually, because it involves areas like education, health and transportation, and a large proportion of expenditures in these sectors are government expenditures.
As for Quebec municipalities, the volume of their annual procurement is in the $10-billion range.
According to the Organization for Economic Co-operation and Development, the sum total of Canadian government procurement at all levels represents approximately 13.3% of Canada's gross domestic product. That is enormous. That is of course one of the reasons why we feel it is important to be here.
Public procurement allows governments and municipal authorities to have access to the private sector's vast production capacity, expertise and innovation. Procurement thus has the concrete effect of consolidating many private businesses. In addition, the expertise of certain businesses is strengthened by providing goods and services to governments and municipalities, which allows them to conquer new markets, accelerate their growth, and export products. Public procurement is a part of our economic ecosystem. And so it is very important to take an interest in it.
According to Public Services and Procurement Canada data, fewer than 10% of Canadian SMEs were suppliers for government contracts over the past few years. During the 2013 to 2016 period, they were involved in purchases of $5.5 billion, or approximately 35% of the government's procurement contracts.
According to the very interesting study on the topic published by the University of Ottawa, the SMEs that are involved in government purchases have a particular profile. These SMEs are focused on growth. Their growth intentions translate into market development, they want to export, and they have a high rate of innovation.
It is unfortunate that more than 90% of SMEs seem to neglect government procurement or cannot take part in it. There are various reasons for this. The representative of the Canadian Federation of Independent Business mentioned this. There is a perception of inaccessibility in that small businesses feel that they will not win the bid, and so they feel there is no point trying. One of our working groups met this morning and this issue was raised, and those are the comments that were made. Consequently we must encourage the efforts that have been made for some years now to streamline the call for tenders and contract awarding procedures.
To help guide government action, the FCCQ has been reflecting on five broad avenues for action that would help improve the level of participation of SMEs in government procurement.
First, the processes must clearly be simplified. It is true that there are limits to simplification, since we are working with public funds and there has to be a high level of accountability. However, it is clear that over the past years, regulatory requirements have been added that have not necessarily been harmonized. We feel that the government should continue to try to resolve this issue. We invite the Government of Canada to re-examine the procurement management process in order to accelerate and improve the participation of SMEs in public procurement.
The second interesting avenue, in our opinion, is to bring together SMEs and large businesses that perform major projects for the government of Canada. We can discuss this further during the question period if you are interested.
In the case of the replacement of the Champlain Bridge in Montreal, the Fédération des chambres de commerce du Québec, in co-operation with the Government of Canada, organized what was known as Industry Day in March 2014. It was a co-operative venture between SMEs and large purchasers. We feel that the Canadian government should multiply these experiences, because they facilitate meetings between SMEs and large businesses that were hired to execute major projects for the federal government.
In certain cases, it may be difficult for an SME to have access directly to government purchasing. However, it may be easier for it to act as a sub-contractor for a larger business. We think that that formula could be interesting for the Canadian government. It is beneficial for SMEs and will ensure economic spinoffs.
The third important element consists in avoiding the excessive centralization of purchases. Centralization certainly favours large businesses in large cities. Obviously, a balance has to be found. We think that centralization is necessary for certain types of purchases, but that it is not as necessary for others. For instance, you may want to centralize purchases in the military domain, but is it really necessary to do so in the case of all-purpose supplies for detention centres?
The fourth important suggestion consists in using procurement as a showcase for exporting certain innovations. As we know, Canadian entrepreneurs, especially those in the innovation sector, must establish their credibility with the markets. This is particularly true in export markets. They have to show that they have an important list of purchase orders and show that they have the necessary credibility to obtain contracts. During the startup phase, which is really critical, if an innovative enterprise can show that the Government of Canada has used its product, this will accelerate its entry into markets considerably.
Recently, in Budget 2017, the Canadian government earmarked new credits for research and development and support for the commercialization phase of prototypes. That is a step in the right direction, but we think it would be a good thing to take this further. In our opinion, the Canadian government should be an open technological showcase for innovative businesses, and allocate part of its procurement to the acquisition of emerging technologies or innovative products. In this way, it would provide concrete support to certain categories of businesses.
More broadly, I think it is important to consider public procurement as a tangible form of contribution to economic development. To that end, it could be advantageous to create alliances between the private sector and the Government of Canada in order to further the development and the export of Canadian technology and know-how.
Finally, the fifth interesting avenue of action for the government consists in developing strategic procurement. There is a lot of discussion about the importance of not considering price alone, and not focusing only on the lowest bidder. In fact, the Conseil consultatif sur l'économie et l'innovation, which was created by the Government of Quebec and is directed by Ms. Monique F. Leroux, formerly of the Mouvement Desjardins, made an interesting recommendation we wish to pass on to you today.
Many governments throughout the world are moving their procurement policies toward what is called strategic government procurement. Rather than seeking to acquire particular goods or services and asking enterprises to meet very precise specifications, governments ask for proposals to resolve a problem. This allows various businesses to get together and put forward innovative solutions or products that are not used in the standard way, in order to meet a particular need. By focusing on projects or problems to be resolved, governments can encourage this type of solution and allow new businesses to have access to public contracts.
We thus recommend that the Canadian government gradually put in place a strategic government procurement process in public departments and organizations, by using competitions for special projects.
In conclusion, even if the participation of SMEs in Canadian procurement poses obvious challenges, it is important and even essential to actively seek ways of increasing SME participation. This can be done by reducing delays and simplifying processes, but also by reflecting on the most strategic way an SME can, in light of its situation, participate directly or indirectly in Canadian calls for tenders.
I thank you for having invited us today.
Thank you, Mr. Chair and honourable members, for the opportunity to speak to you today about small business and the procurement process.
What can we be doing to ensure that small businesses benefit from the procurement process, what's working, and what could we be doing better? Those are the questions that I want to try to answer in my remarks this morning. They're questions that matter to us at AIAC, because of the over 700 aerospace firms in Canada, 93% are actually small businesses. I'll also point out that, as you will probably be able to tell, these are topics that are very close to my heart. I've spent about 22 years living this particular dream, working for and eventually running a small company that did a lot of government work. That's why I asked Jim if I could be the one to give our remarks today.
To put it simply, as you've already heard from the previous two speakers, really the most important thing you can do in government is to understand small businesses and do business with them in a way that is advantageous to small business. Know what they need to succeed and thrive, and make sure that government policies, programs, rules, and procedures take their unique nature into account.
I want to spend a bit of time talking about small business.
First of all, I want to talk about what small business isn't. Small business, first of all and primarily, isn't big business that hasn't gotten big yet. A small business doesn't want to be a big business when it grows up. In important ways, small businesses function differently from large corporations. They succeed and thrive in a different environment and according to different imperatives and constraints, and they need to be dealt with in their own way.
The other thing to remember is that small business is neither inexperienced nor unsophisticated. Particularly in our sector, small businesses are specialized, highly innovative suppliers to customers in global supply chains. They're owned and run by skilled businesswomen and men who have dedicated considerable training and experience to building profitable companies in an extremely competitive business environment.
What, then, is small business? There are two defining characteristics that we often talk about, and the first one for small business is that they are cash-flow focused and not balance-sheet focused. This can come off as looking a bit like a short-term focus, but really what it means is that in order for small businesses to be able to make investments in their future growth, they have to take care of their short-term risks first. That affects the way they deal with their customers and the way they consume government policies and programs. Really, the key thing to remember when you deal with a small business person is that whatever else is going on, this is a person who needs to make payroll for 20 or 75 or 143 people this Thursday and every Thursday.
The other thing to remember about small businesses is that they do not have a lot of specialized staff. There are no contract or legal or HR departments in small companies. Well, there are, but it's usually one person who does all of those things. You can see in this context why the simplification and the cutting of red tape in the bid and proposal process is not just desirable but absolutely directly related to that problem of paying everybody this Thursday and every Thursday.
This also leads to the great strength of small business. As Louis has already alluded to, small businesses are lean and customer focused. Small businesses know how to maximize their limited resources, and they're focused on maximizing those resources for the benefit of their customers because, simply put, a happy customer is a return customer, and return customers make it easier to make that payroll every Thursday.
With these general observations as our foundation, what are some of the specific practices and recommendations that make procurement easier and better for small businesses? Let's start with some of the things the federal government is doing that are really working.
In terms of government programming, there are two things I would really like to mention, and they've already been mentioned, but the build in Canada innovation program, or BCIP, is viewed by the small business community as a real success. Small businesses really have a lot of respect for the office of small and medium enterprises, or OSME, which administers it. BCIP is a great opportunity for small companies to access procurement opportunities in Canada, and OSME is very effective at understanding small business needs and advocating for the small business point of view inside the procurement system.
We would also point out that innovative solutions Canada is another program that, although still in its early stages, seems to be holding a lot of promise. It's modelled on the United States' highly successful SBIR program and is designed to leverage procurements to fund and purchase innovative new products and services from small businesses, providing them with that valuable first-buyer support that they all tell us is critical, especially in the kinds of procurements that our companies are involved in.
Lastly—although it's a little bit policy-wonkish—rated and weighted value propositions inside the defence procurement system can help and are helping encourage large bidders to incorporate small businesses directly into their successful bids. Although I think there is still more that we could do here, it definitely seems to be going in the right direction.
There are some things, though, where we think there is a little more work to be done, so I'll conclude with four recommendations for you to consider during the discussion today and as you develop your report.
The first of our recommendations is simple: be aware of small business needs. When you're developing policies and processes, reduce the complexity of contracts and contracting processes. Also, as Louis said, nothing presents a bigger problem to small businesses than struggling to collect payment for services that have already been rendered. Making sure that contractors are paid in full, on time, every time should be a top priority of every procurement officer in the federal government, period.
Second, we recommend the development of a vendor management system that rewards good performance with the opportunity to do more business with the government. Allowing procurements to take into account previous performance, something that is specifically prohibited in the procurement system today, will allow small businesses to employ their people where they are most productive, working for customers, and that's what will allow them to plan, invest, grow, and pay everybody this Thursday and every Thursday.
Third, we recommend that the government find more ways to work directly with small businesses through the procurement process. Reinforcing BCIP, and implementing innovative solutions Canada, both of which I mentioned earlier, would be excellent places to start.
Finally, value propositions and the way they're handled can and should be used to leverage the inclusion of small businesses in negotiations with large manufacturers and bid teams prior to the bidding process. We need more than a commitment from large bidders to use small companies on their teams after the fact. We need them to engage with small bidders prior to actually submitting a bid, with the understanding that the participation of those small companies is essential to their winning the bid. This will give our small businesses the leverage they need to conduct the negotiations that are advantageous to them to make sure that they participate in the procurement process in ways that they deem to be of most value to themselves.
I will stop there. I will be happy to answer any questions you might have.
Gentlemen, thanks for joining us.
Mr. Parent, thanks for taking time out to beam in.
I want to follow up on Mr. Christie's comment about OSME. It is a phenomenal resource. We used it in Edmonton just last week for a town hall on how to sell to the government. A lot of the feedback we received that day directed toward OSME was concerning, as Mr. Parent mentioned—and it came up a lot—the difficulty of dealing with business, the complexity. I love the quote here: “Dealing with federal tenders is too painful to bother.”
That, of course, comes up in the procurement ombudsman's annual report. I think 25 of the top 32 issues were all concerning red tape.
I want to wrap it around to a couple of government initiatives. One is a private member's bill, Bill , which is about community benefits. It provides the minister with the authority to require an assessment of community benefits as part of an RFP process. To me, this adds a huge level of red tape and also a large amount of uncertainty because it does not define what a community benefit is, but does allow the minister to demand that a small business provide an assessment.
I wonder if I can get feedback from CFIB and from you, gentlemen, about this possible bill coming down.
Thank you, Mr. Drouin.
Thanks especially to the witnesses for being here today.
As , I must tell you that we are determined to modernize the procurement process. It’s one of the top priorities set out in the Minister of Public Services and Procurement’s mandate letter. The SME issue is obviously hugely important.
As part of this process, we have reached one or more agreements with various jurisdictions regarding acquisitions related to specific jointly held properties. Most of the agreements are with provinces, but we will soon be extending them to municipal authorities as well as to the health and education sectors.
I’m going to share a little anecdote with you. One province had a concern. One of its manufacturers was worried prior to signing the agreement with the Government of Canada. The province was adamant about doing business with the manufacturer, who turned out to be selling the product to the federal government and, by extension, all of its partners, at a lower price than what it was charging the province.
Unfortunately, Quebec still hasn’t signed the agreement.
Not only does this tool provide value to taxpayers in various jurisdictions—there is only one taxpayer, as we know—but it also affords businesses in those jurisdictions the opportunity to offer their products and services at the national level.
My question is for the representatives of the Fédération des chambres de commerce du Québec. If there is enough time left, the representative from the Canadian Federation of Independent Business can answer as well.
Would you be supportive of federal government efforts to expand the agreement and sign one with the Quebec government? Are you even aware of those efforts?
Mr. Parent, I want to follow up on Erin's comments regarding the regulatory process. When we look at your page 8, there's 71% with “The government's tendering/bidding process”, “No means of determining what the gov't wants”, and “Too much paperwork”. Then another 20%, actually, which I didn't include in that 70%, is the “Inability to contact the actually user/purchaser”. We've had some discussion about that. Mr. Christie brought it up.
Then when you get to your page 10, you mention “Simplicity of forms”, “Clarity of steps necessary to sell to federal gov't”, and “Notification”. Those were the three that you had mentioned.
I'm glad to hear from our witnesses in some respects that things are improving. Quite honestly, I think, as political people, we want to see that. Many of us have been in business. We understand small businesses. They're in our ridings. We talk to them all the time. I think many of us get that.
I think our challenge is that if that's the case—and we've talked about it here—why do you think it is so difficult? That's a policy thing, I guess. The challenge becomes of moving forward in the complexity. Why have they become so complex? Is it for liability? Do you have any ideas?
I want to go to Mr. Parent.